Dracoro

? Gonna happen soon probably, maybe, definitely, never

All speculation, but what influences the BoE to rasie or lower the rate.

Way back when rates went up quite rapidly. i.e. 5% to 9%, or 7% to 14% in a matter of months but what preceded these rise in rates?

SteveLegacy

As I recall Nigel Lawson abolished pretty well all income tax down to 2 rates, everyone went out and spent loads more than they should, so borrowed massively, and to kill the credit boom, hiked interest rates, resulting in a collapse in the housing market.

TelBoy

Drac, good questions. Exceedingly briefly, some of the influences are;

1. Level of UK GDP/growth
2. Government inflation targets
3. House price inflation (not for much longer tho)
4. GBP exchange rate
5. State of UK manufaturing
6. Money supply
7. Level of UK retail spending
8. World events
9. "Other" factors

General feeling is that there will be a small hike soon, possibly withing 3 months, although manufacturing data out this week was abysmal, so this might be delayed. They will almost certainly not come down any further.

Rapid rises are usually caused by rapid cycles of economic growth, consistent with boom/bust cycles. Very difficult to predict, even harder to prevent. Currency crises can also cause it, but these days that is less likely. And additionally, external shocks such as war, oil effects and so on. It's a complex jigsaw!

TurboKitty

AIUI, very simplistically it depends on whether we are to be encouraged to spend money or save it.

Cutting personal taxation levels and interest rates can be a means of encouraging people to "spend their way out of recession", whereas raising interest rates can be aimed at slowing an economy running too hot.

Still, it's been a looooong time since I studied this stuff, so I could be totally wrong.

I, personally, stick to the plan of spending it whether I have it or not. Much simpler.

carl

Actually it was Nigel Lawson dropping the rates to 7% that triggered the boom.

The increases (went up to 15% and back down a bit in one day!) were due to the need to stabilize the exchange rates when we were in the ERM.
http://news.bbc.co.uk/onthisday/hi/d...0/2519013.stmp

SteveLegacy

Ah yes, the ERM, that had slipped my mind......hopefully it keeps Lawson awake at night still!

carl

Well, IIRC, the ERM was Lamont's doing. Remember that Nige was a darling of Thatcher, while Lamont was Major's boy...

tiggers

The ERM fiasco was indeed a Lamont special. Massive amounts of the country's financial rates were wasted in one day when it was widely known already we'd have to drop out of the ERM sooner or later. Still there's nothing like trying everything to avoid losing political face is there?

Still no doubt most people who use this site have either conveniently forgotten this or look at it with rose tinted spectacles.

BTW the rates were announced at increases to 19% then 25% although they never actually happended as by the following morning we were out of the ERM. Another great chapter in our previous governments magnificent reign.

tiggers.

carl

So why does the present government think we'd fare better with a single European currency? FFS, we couldn't even stay within the 6% tolerances of the ERM, let alone a fixed exchange rate...

blair

The point of joining the euro would be that there is no exchange rate against other European countries

Therefore once less risk to hedge against for business etc.

Still, I'm not sure how you can set fiscal policy in more than a dozen member states with economies all as diverse. What's good for sheep farmers in Portugal doesn't necessarily fit in with whats good for Uk plc !

carl

Yes but a fixed exchange rate is equivalent to a single currency. The economy will still suffer when slack can't be taken up by a variation in the exhange rate (I know -- raise interest rates!).

blair

Exactly ! But the interest rates are set centrally by the ECB and so will be influenced by Greek olive farmers or the German financial services industry as much as they will be influenced by UK manufacturing

I still don't understand how governments will manage their own economies - the only thing left to influence spending would be Govt spending (although deficits have to be within set levels)or taxes.

And the EU want to harmonise tax rates as well - so how can you turn several different states with differing fiscal policies into one big, happy economy :

I just don't understand how it could ever work

TelBoy

The bigger it gets, the harder it will become to control.

A lot of people have been surprised (and confounded) as to how well it's worked up till now, but with Eastern European countries joining, the task will become harder still.

Personally i just don't think the British people have the political desire for it. Maybe they will with time, but i don't see it happening anytime soon unless we're steamrollered in.

pslewis

Good grief - I forgot that all that **** happened under the Tories!!

I think Labour are doing an even better job after reading the above!

Think, Tories = 15% interest rates ... Labour = 3.5% rate

Derrrrrrrrr, I wonder which is better for me?! Derrrrr dribble, dribble!!

Pete